Israel’s banking system is in the midst of a digital revolution, and has undergone tremendous changes in recent years, which are expected to benefit mainly households and small businesses. The many changes also affect the banks’ employees and managements, and are expected to continue in the coming years. The changes reflect increased supply of the financial products and services offered to households, a change in how they are consumed—transitioning to remote consumption via the Internet, cellular applications and ATMs, alongside a reduction in the number of bank branches and in the number of customer visits to the branches—and in a decline in the number of bank employees. This is all a result of the banking technology revolution that we are seeing in all areas of our lives, including an increase in the power of the consumer and a change in consumer demands, widespread legislation in banking areas, and initiatives by the Banking Supervision Department that are intended to improve the state of households and small businesses while ensuring a sustainable business model for the banks that maintains the stability of the banking system.
- In the area of technology—the banks are offering more technological tools and new services for customer use, such as cellular applications that enable customers to execute almost all banking activity remotely and with greater convenience; more sophisticated ATMs through which customers can execute a greater number of transactions; personal warnings that the banks send to customers to assist them in informed financial activity; centralized cash management information for businesses covering all their accounts; and more. We have seen that the public consumes more than 50 percent of banking services from outside the branches, through various direct means, and this rate is increasing.
As a result of changes in banking product consumption habits, the number of bank branches was reduced by 23 in 2016. Most of the banks merged branches that were close to each other, mainly in the main cities, and opened branches in the periphery. Our assessment is that the public’s transition to consuming banking services outside the branch will continue and expand in the coming years, and that the decline in the number and size of bank branches will continue, similar to the trend in Europe and in the US.However, technology will not necessarily replace the personal connection between the bank and the customer, but will rather help in creating a different personal connection, more in line with the customer’s needs, and not necessarily involving a face-to-face meeting. In order to help customers who are having difficulty due to the closure of branches, chiefly senior citizens, the Banking Supervision Department has worked to set principles for a correct decision-making process and for maintaining a proper level of service in cases where branches are closed and the number of tellers at branches is reduced. Furthermore, in order to ensure the implementation of these principles, the Banking Supervision Department is examining each request to close a branch on a case-by-case basis, in keeping with its legal authority.
- Alongside the promotion of technology, the Banking Supervision Department acted in the past year to strengthen the management of risks derived from technology, and involved the banks in the establishment of a banking cyber center that began operation at the beginning of 2017. This is a joint project of the National Cyber Defense Authority, the Ministry of Finance, all of the banks, and the Banking Supervision Department. The center, which is similar in format to the Financial Services – Information Sharing and Analysis Center (FS-ISAC) that operates in the US, is intended to assist the banks in dealing with cyber attacks that take place on an on-going basis and with nation-wide attacks that may be significant. We view the banking cyber center as an essential additional line of defense that exploits the advantages of synergy in transferring information between the banks in order to protect the entire system, and harnesses the abilities of experienced experts on the national level to protect depositors as well.
- In the area of efficiency, the banks presented significant plans to reduce their work forces and expenses, and have already begun implementing them, in accordance with the Banking Supervision Department’s requirements. In 2016, 1,940 employees left the banks, and this trend is expected to continue in 2017 and in the coming years. The departure of many employees from the banking system is being managed such that it respects them and their contributions over the years, through a voluntary retirement program. With that, the departure of employees is not easy for some of them, or for the banks, since it requires the banks to adapt their work processes to the reduced work force and to fill in the knowledge that is lost with the retirement of experienced skilled employees.
The reduction of the work force is a result of the banks’ need to adapt themselves to digital banking, where some activities no longer require the assistance of a teller. It is also derived from the Banking Supervision Department’s requirement that the banks streamline and reach the efficiency levels customary in banks around the world. The Banking Supervision Department will continue requiring the banks to take a variety of additional measures to reach better efficiency ratios and to pass the savings from the streamlining on to customers through improved tools and service and lowering the cost of banking services, alongside the distribution of dividends to bank shareholders, most of whom are from the broad public.
- In the areas of promoting competition, the Banking Supervision Department issued a license for a new merchant acquirer in 2017, which is expected to provide services to small and medium businesses, and to compete with the three credit card companies currently operating in the field. The entry of this acquirer to the market was made possible due to the significant reduction in requirements and entry barriers adopted by the Banking Supervision Department—mainly the lower capital requirement (to the standard common around the world) and leniencies in the process of issuing the license.
In addition, the Banking Supervision Department worked with the Ministry of Finance, as part of the Committee to Advance Cooperation, to advance the separation of two credit card companies from the large banks while working to ensure their ability to develop during the transition period until they are sold by the banks, so that they will be able to become significant players in a variety of financial areas, and even become digital banks if they choose that strategy. The two large banks are preparing to sell the credit card companies in accordance with the requirements of the law. At the same time, the Banking Supervision Department has been acting to remove entry barriers to banking, in order to encourage the establishment of a new—digital—bank.
- In the area of maintaining fairness and increasing transparency, the Banking Supervision Department issued guidelines concerning the collection of debts from households and small businesses. These guidelines ensure, among other things, an increase in “soft collection” proceedings and the involvement of the banking corporation in all stages of collection. However, the Banking Supervision Department emphasizes that debt must be repaid, whether the debtor is a large corporation or a household. The Banking Supervision Department also adopted various measures in the area of bank fees. Among those was the inclusion of senior citizens and those with disabilities to the low-cost tracks service; providing guidelines for customer-executed transactions; and regulation of fees for withdrawals from remote ATMs.